NEW DELHI: Shares of Tata Motors temporarily tanked 10% (lower circuit) on Tuesday after its British subsidiary Jaguar Land Rover (JLR) reported that global shortage in semi-conductor chips will lead to a 50% decline in production during the September quarter and only a marginal recovery is expected during the second half of this financial year.
“We expect the situation will start to improve in the second half of our financial year. However, the broader underlying structural capacity issues will only be resolved as supplier investment in new capacities comes online over the next 12-18 months and so we expect some level of shortages will continue through to the end of the year and beyond,” said JLR in a statement.
As a result of constraints in supply chain and lower production, JLR expects an operating cash outflow of about £1 billion with a negative operating margin in the second quarter. Following this announcement, shares of Tata Motors plummeted even as it was rallying at around 3%during early morning trade on news that the company is going for a price hike in India for Tata Motors range of cars and SUVs. Tata shares ended 8.41% lower at Rs 316.95 on BSE after hitting a high of Rs 358.10. To note, Tata Motors stock has gained about 200% in the last year.
Analysts said that JLR’s struggle to meet the demand is sure to impact the company’s performance in near term but long term growth remains intact. “Due to profit warning for JLR on account of shortage of semiconductors in 1QFY22 as well as 2QFY22 and indication of negative operating margins for 1HFY22 disappointed investors as street was expecting remarkable improvements in 2QFY22. This would result into sizable loss for Tata Motors on consolidated basis in 1HFY22E,” Mitul Shah, Head of Research, Institutional Equity, Reliance Securities told TNIE.
In the quarter ended June, JLR’s retail sales rose 68.1% year-on-year to 1,24,537 vehicles. At the wholesale level, volumes jumped 73% on year to 84,442 units excluding China JV numbers. However, this was 30,000 units lower than what was planned due to chip shortage and the impact of the pandemic, the company said. JLR presently has about 110,000 global retail orders, the highest in the history of the company.